Navy's Air Warfare Destroyer project blows out by $300m

National security correspondent

"The design and construction issues have led to extensive time-consuming and costly rework". Photo: Supplied

The cost of building Australia's most powerful warships has blown out by $300 million - a figure likely to rise sharply - amid management problems and poor productivity, an auditor's report has found.

The much-anticipated assessment of the $8.7 billion Air Warfare Destroyer project found that Australia's shipyards were not fully prepared to take on the complex work, while the Spanish ship designer provided poor blueprints marred by ''drawing errors or omissions'' and late changes.

''The design and construction issues have led to extensive, time-consuming and costly rework,'' the report said.

Defence Minister David Johnston welcomed the report and blamed the former Labor government. Senator Johnston has ordered an independent review of the project.

Advertisement

After an original budget of $8.45 billion, the price tag of the three cutting-edge warships had already risen by $302 million, or 6.8 per cent. At this rate, the blowout could reach about $800 million over the lifetime of the project.

''In light of these concerns about cost overruns, the current estimated cost (increase) of $302 million … should be treated with caution; the cost increase is likely to be significantly greater,'' the report said.

Changes to designs as recently as last year had ''led to costly and out-of-sequence rework in cases where construction work already undertaken no longer matched the design'', the report said.

But there were also ''shortcomings in capacity and skills'' at the major shipyards - BAE Systems in Williamstown, Victoria, and Forgacs in the Hunter Valley, NSW - that had been building the huge hull blocks for the ships.

This had led to delays of between 15 and 21 months and further costs.

The problems had been compounded by the unwieldy set-up of the AWD Alliance, made up of the government military purchaser the Defence Materiel Organisation, the government-owned shipbuilder ASC and the private company Raytheon.

The Defence Materiel Organisation copped criticism for under-appreciating the risks of using a Spanish design while employing local shipyards that were out of practice on such large, complex projects.

It was the first time the Spanish company Navantia had exported one of its ship designs to foreign shipyards.

It was also the first time the ASC had built a surface ship.

By not including Navantia in the AWD Alliance, defence gave the company little reason to put its own profit share at risk, the report found.

The first of the ships is now expected to be delivered to the navy in March 2016 instead of December this year, as originally planned.